SaaS co's need to hold more cash

We always encourage companies to hold more cash than they think need for a variety of reasons: i) a new growth opportunity may come up that you need to jump on; ii) your business could hiccup; iii) as a CFO once told me “everyday that goes by means we’re one day closer to the next recession”; iii) raising money frequently is time consuming and distracting; and iv) capital markets for startup & Series A/B funding could seize.  So how much cash should you hold?


We generally recommend raising at least 2 years of cash so that you have 18 months to grow like crazy, and then 6 months to raise money based on the new milestones you’ve achieved.  It also gives you a nice buffer for unforeseen events.  Even 2 years may be too conservative though.  Of the 72 publicly traded SaaS companies we follow, 45 generate negative EBITDA (63%) and 19 generate negative free cash flow.  Those cash burners run conservatively: they tend to hold on median 4.2 years worth of operating losses on their books and at least 9 years worth of negative free cash flow.  Even the riskiest company holds at least 1.3 years of cash on its books.  The data is below.

 

 

    TTM TTM  TTM    Market     Enterprise   Cash/ Cash/
Name Ticker Revenue EBITDA FCF   Cap Debt Cash Value   Neg EBITDA Burn
Hortonworks, Inc. HDP $199 -$233 -$56   $859 $0 $84 $775   0.4x 1.5x
Cloudera CLDR $284 -$333 -$88   $2,270 $0 $222 $2,048   0.7x 2.5x
Instructure INST $122 -$49 -$31   $934 $0 $39 $895   0.8x 1.3x
NantHealth NH $103 -$147 -$65   $520 $192 $125 $587   0.9x 1.9x
Nutanix NTNX $681 -$351 $10   $2,560 $0 $350 $2,210   1.0x ---
Amber Road AMBR $75 -$12 -$2   $254 $24 $15 $263   1.3x 6.2x
Box, Inc. BOX $426 -$116 $12   $2,600 $80 $183 $2,497   1.6x ---
MobileIron, Inc. MOBL $172 -$50 -$1   $419 $0 $89 $330   1.8x 76.2x
Workiva WK $186 -$34 $11   $807 $21 $65 $763   1.9x ---
Castlight Health, Inc.  CSLT $107 -$50 -$34   $548 $0 $103 $445   2.0x 3.0x
Appian Corporation APPN $135 -$15 $0   $1,170 $20 $35 $1,155   2.3x 91.2x
Okta OKTA $182 -$86 -$37   $2,090 $0 $224 $1,866   2.6x 6.1x
Zendesk, Inc. ZEN $337 -$84 $27   $2,900 $0 $248 $2,652   3.0x ---
Yext YEXT $134 -$45 -$24   $1,130 $0 $134 $996   3.0x 5.7x
Secureworks SCWX $443 -$27 -$10   $887 $0 $92 $795   3.4x 8.9x
HubSpot, Inc. HUBS $294 -$36 $35   $2,650 $1 $123 $2,528   3.4x ---
Xactly XTLY $97 -$12 $1   $504 $13 $44 $473   3.6x ---
Talend TLND $116 -$26 $4   $1,090 $0 $95 $995   3.7x ---
Splunk, Inc. SPLK $1,010 -$288 $208   $8,320 $84 $1,090 $7,314   3.8x ---
Everbridge Inc EVBG $83 -$10 $10   $659 $0 $40 $619   3.8x ---
Marin Software, Inc. MRIN $93 -$9 $4   $45 $3 $33 $15   3.9x ---
FireEye FEYE $720 -$219 -$9   $2,610 $751 $875 $2,486   4.0x 97.2x
New Relic, Inc. NEWR $263 -$49 $19   $2,560 $0 $206 $2,354   4.2x ---
Benefitfocus, Inc. BNFT $243 -$13 -$10   $1,130 $109 $58 $1,181   4.4x 5.5x
Q2 Holdings QTWO $161 -$19 -$7   $1,600 $0 $82 $1,518   4.4x 11.0x
Mulesoft MULE $235 -$54 $1   $2,820 $0 $256 $2,564   4.7x ---
Wix.com Ltd. WIX $356 -$39 $66   $2,790 $1 $186 $2,605   4.8x ---
Apptio APTI $168 -$23 -$2   $705 $0 $111 $594   4.8x 54.0x
Cornerstone OnDemand, Inc. CSOD $435 -$42 $43   $2,300 $241 $290 $2,250   7.0x ---
Twilio TWLO $305 -$41 $7   $2,640 $0 $289 $2,351   7.1x ---
Blackline BL $135 -$14 -$2   $1,990 $0 $101 $1,889   7.2x 54.5x
Coupa Software COUP $145 -$32 -$4   $1,620 $0 $238 $1,382   7.5x 66.7x
2U TWOU $223 -$18 -$13   $2,430 $14 $143 $2,301   7.7x 11.3x
Alteryx Inc AYX $96 -$20 -$4   $1,180 $0 $164 $1,016   8.1x 41.0x
Channel Advisors ECOM $115 -$7 $9   $275 $1 $63 $213   8.5x ---
WorkDay, Inc. WDAY $1,700 -$242 $366   $21,080 $541 $2,120 $19,501   8.8x ---
RingCentral, Inc. RNG $405 -$12 $34   $2,620 $0 $150 $2,470   12.3x ---
Shopify SHOP $444 -$30 $17   $9,100 $0 $396 $8,704   13.3x ---
Bazaarvoice, Inc. BV $202 -$5 $15   $400 $32 $91 $341   18.6x ---
Callidus Software CALD $216 -$8 $29   $1,580 $0 $183 $1,397   23.9x ---
Mindbody, Inc MB $160 -$9 $4   $1,200 $15 $224 $991   25.0x ---
Proofpoint, Inc. PFPT $442 -$17 $135   $3,750 $378 $429 $3,698   25.5x ---
Atlassian Corporation TEAM $620 -$16 $199   $8,070 $0 $550 $7,520   34.1x ---
ServiceNow, Inc. NOW $1,630 -$32 $546   $1,871 $1,140 $1,690 $1,321   52.5x ---
Appfolio, Inc. APPF $115 $0 $16   $1,190 $0 $27 $1,163   82.8x ---
Athenahealth, Inc. ATHN $1,150 $128 $169   $5,590 $280 $71 $5,799   --- ---
BroadSoft, Inc.  BSFT $348 $26 $67   $1,350 $204 $300 $1,255   --- ---
Five9, Inc.  FIVN $171 $3 $7   $1,210 $46 $56 $1,199   --- ---
LivePerson Inc. LPSN $216 $6 $0   $795 $0 $54 $740   --- ---
LogMeIN, Inc. LOGM $618 $128 $221   $6,140 $0 $286 $5,855   --- ---
Medidata Solutions, Inc. MDSO $509 $77 $106   $4,500 $271 $367 $4,404   --- ---
Qualys, Inc. QLYS $205 $49 $83   $1,490 $0 $245 $1,245   --- ---
RealPage, Inc. RP $593 $89 $141   $3,200 $121 $60 $3,261   --- ---
salesforce.com, Inc.  CRM $8,860 $445 $2,340   $6,465 $2,540 $3,220 $5,785   --- ---
SPS Commerce, Inc. SPSC $207 $23 $28   $992 $0 $158 $834   --- ---
The Ultimate Software Group, Inc. ULTI $823 $63 $167   $6,720 $9 $84 $6,645   --- ---
Veeva Systems Inc. VEEV $582 $141 $177   $8,920 $0 $664 $8,256   --- ---
Alarm.com ALRM $276 $47 $23   $1,760 $74 $63 $1,771   --- ---
Blackbaud BLKB $745 $126 $160   $4,330 $356 $14 $4,672   --- ---
Ebix EBIX $306 $111 $89   $1,820 $309 $123 $2,006   --- ---
Ellie Mae ELLI $394 $82 $114   $2,970 $0 $334 $2,636   --- ---
HealthStream HSTM $238 $24 $47   $753 $0 $116 $637   --- ---
J2 Global JCOM $928 $376 $269   $4,080 $828 $187 $4,721   --- ---
Kinaxis KXSCF $121 $20 $33   $1,500 $0 $142 $1,358   --- ---
Medidata Solutions MDSO $509 $77 $106   $4,470 $271 $367 $4,374   --- ---
Mimecast MIME $187 $2 $33   $1,580 $2 $112 $1,471   --- ---
Paycom Software PAYC $359 $79 $109   $4,170 $32 $93 $4,109   --- ---
Paylocity Holding PCTY $284 $17 $47   $2,340 $0 $101 $2,239   --- ---
Tabula Rasa Healthcare TRHC $102 $4 $4   $269 $2 $3 $267   --- ---
The Trade Desk TTD $226 $59 $35   $2,260 $26 $107 $2,179   --- ---
Upland Software UPLD $78 $9 $9   $500 $57 $19 $538   --- ---
Zix ZIXI $62 $12 $15   $290 $0 $23 $267   --- ---
                         
                         
Average   $471 -$10 $84   $2,655 $126 $274 $2,508   9.5x 28.7x
Median   $237 -$12 $16   $1,790 $1 $124 $1,644   4.2x 8.9x

 

If the big boys hold so much cash, why aren’t you? Don’t forget, these are publicly traded companies that can easily access cash by issuing new stock or raising debt which is readily available to them given their size.  Yet, 4 years worth of cash is the norm.   Even though it’s dilutive, err on the side of holding more cash, not less.  

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